Copper Prices Remain Volatile Amid China’s Economic Measures and Supply Issues

Copper, the third most used metal globally, is crucial for the energy transition, particularly in electrification and renewable energy applications. Recent developments, including China's stimulus measures, have led to significant volatility in copper prices, adding uncertainty to the metal's future.

China's economic actions have been a major driver of this volatility. Copper futures are actively traded on platforms such as the London Metal Exchange (LME), COMEX, and India's Multi-Commodity Exchange (MCX). As the world’s third most used metal, copper plays a central role in various modern industries, from power infrastructure to electronics.

Chile remains the leading producer of copper, contributing over a third of the global supply, followed by Peru, the Democratic Republic of the Congo, China, the United States, and others. Major copper importers include China, Japan, India, South Korea, and Germany.

In October 2024, copper prices have experienced substantial fluctuations, largely due to China's economic maneuvers. The Chinese central bank introduced a significant stimulus package in late September aimed at reviving its economy, featuring monetary measures such as interest rate reductions and eased mortgage payments.

These efforts briefly drove up copper demand, with the LME three-month copper price reaching a four-month high of $9,995 per metric ton on September 27. However, this boost was short-lived as market participants noted the lack of clarity surrounding the specific spending measures. The combination of an uncertain stimulus plan, a stronger U.S. dollar, and weakened demand for copper soon pushed prices down. By October 17, the LME three-month copper price had decreased to $9,506 per metric ton, according to S&P Global Commodity Insights.

Copper futures continued to reflect these pressures, with prices falling to around $4.31 per pound on Monday after two sessions of gains. The decline was influenced by a stronger dollar and rising U.S. Treasury yields, reducing expectations for major interest rate cuts by the U.S. Federal Reserve. Meanwhile, market participants are eyeing the upcoming National People's Congress meeting in China (scheduled for November 4 - for potential policy updates on debt and fiscal measures).

Global copper supply has faced numerous challenges, particularly from production setbacks in key regions. A notable disruption occurred at Freeport-McMoRan Inc.'s Manyar smelter in Indonesia, where a fire delayed production start to early 2025, impacting the concentrate market. Additional issues included reduced output at major Chinese smelters, such as Baiyin and Jinxin, which further tightened concentrate supplies.

As a result, the anticipated copper supply deficit for 2024 stands at 52,000 metric tons, with a larger shortfall of 848,000 metric tons projected for 2025. Despite these disruptions, treatment charges (TC) for copper concentrates are expected to remain at $35 per dry metric ton in 2025, reflecting the ongoing tightness in the concentrate market, which may exert upward pressure on smelter margins.

The Chinese market has sent mixed signals regarding copper demand. Following the national holidays in early October, many downstream copper buyers anticipated further price declines, resulting in a slowdown in new orders. This cautious stance led to production cuts among wire and cable manufacturers, with some buyers opting for copper scrap due to its greater availability and lower cost compared to primary copper.

However, not all demand indicators were weak. China’s electric vehicle (EV) sector continued to support demand, with EV production rising by 48.8% year-on-year in September 2024. The growing EV market boosted demand for copper components, which are essential in electric vehicle manufacturing. Copper's superior conductivity makes it vital for EVs, batteries, and other renewable energy applications like wind and solar power.

An electric vehicle uses about three times more copper than a traditional gasoline-powered car. As the shift toward cleaner energy accelerates, EVs are expected to increase their share of total copper demand, from around 11% in 2021 to over 20% by 2040. According to data from BHP, global copper demand is projected to grow by approximately 70%, surpassing 50 million tonnes annually by 2050, with an average annual growth rate of 2%.